Inactivity Fee

What Is an Inactivity Fee?

An inactivity fee is a sum charged to investors who haven't engaged in any buying or selling activities in their brokerage accounts for an amount of time specified by the brokerage.

Key Takeaways

  • An inactivity fee is a sum charged to brokerage accounts that haven't met minimum buying or selling activity over a specific period.
  • Credit card issuers can only charge inactivity fees under certain circumstances.
  • Brokers can try to compensate for the lack of commissions by charging inactivity fees.

Understanding an Inactivity Fee

Many credit card issuers previously charged an inactivity fee to credit card holders who hadn’t made any purchases in an amount of time specified under their terms and conditions. However, the practice became more difficult after the introduction of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which mostly banned credit card companies charging consumers for not using their credit cards. Inactivity charges still apply to some unused or inactive electronic gift certificates, gift cards, and general-purpose prepaid cards.

Unfortunately, the law doesn't extend to stock and options investors. One of the ways brokerages make money is from the commissions on trades. When a customer makes infrequent trades, the brokerage doesn't make money from that customer. The broker can then try to compensate for the lack of commissions by charging inactivity fees. Smaller, passive investors who make a small number of trades are the most disadvantaged by inactivity fees.

Inactivity Fee and the Credit Card Accountability, Responsibility And Disclosure Act Of 2009

Until the Credit CARD Act of 2009 passed, credit card issuers could easily charge consumers for not using their credit cards. When these dormancy fees were in effect, cardholders had to make sure to use their cards periodically to avoid incurring charges. Different issuers had different time frames for considering an account inactive and assessing the fee. During that period, the best way to avoid an inactivity fee would have been to close the account of the unused card. However, this posed a problem for consumers who wanted to have a credit card for emergencies. It was also problematic for consumers who did not want to close a zero-balance account because lowering their total available credit would increase their credit utilization ratio, possibly resulting in a lower credit score.

The Credit CARD Act mostly made dormancy fees illegal, but card issuers can still charge consumers if there has been no account activity for 12 months. The issuer must disclose the existence, frequency, and amount of these fees conspicuously before the card is issued and must not charge them more than once per month.

Before signing up to a credit card, ask the issuer about inactivity fees, in addition to any other hidden charges that apply.

Example of a Broker Inactivity Fee

Popular online brokerage firm Interactive Brokers Group (IBKR) applies a $20 per month inactivity fee to accounts with balances less than $2,000 if clients don't generate at least $20 in commissions. The charge reduces to $10 for accounts with a balance of between $2,000 and $100,000 and that don't meet minimum monthly commissions of $10. Investors 25 and under must generate at least $3 in monthly commissions or pay the equivalent in activity fees.

Such charges are less likely to impact active traders who regularly buy and sell securities. However, inactivity fees can add up for investors who favor buy and hold strategies. Investors and traders can quickly compare inactivity fees via brokerage comparison sites.

Article Sources
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  1. Federal Deposit Insurance Corp. "6500 - Consumer Financial Protection Bureau. Sec. 1026.52  Limitations on fees." Accessed Nov. 7, 2020.

  2. Federal Trade Commission. "Public Law 111-24: Credit Card Accountability, Responsibility, and Disclosure Act of 2009," Pages 19-22 and 37. Accessed Nov. 7, 2020.

  3. Interactive Brokers. "Account Minimums." Nov. 7, 2020.